EU environmental taxonomy

march 2022
6 min read

The Taxonomy in Brief

Adopted on June the 18th, 2020 by the European Parliament and the Council of the European Union, the Taxonomy is a European regulation (2020/852 DU), classifying activities considered sustainable.

In line with 2015 Paris Agreements and the 2019 European Green Pact, this regulation is an essential step towards the objective of a climate neutral Union by 2050.

The Taxonomy aims to encourage economic actors to identify their positioning in relation to the EU's sustainable transition trajectory, and to enable financial actors to prioritize the allocation of funding to the most contributing projects and assets.

It establishes a set of specifications for listing activities and assessing their contribution to one or more of the 6 environmental objectives:

  1. Climate change mitigation
  2. Climate change adaptation
  3. The sustainable use and protection of water and marine resources
  4. The transition to a circular economy
  5. Pollution prevention and control
  6. The protection and restoration of biodiversity and ecosystems

The first delegated act on sustainable activities for climate change adaptation and mitigation objectives was published on December 9, 2021 and applicable on January 1, 2022. The second delegated act for the other objectives will be published during 2022.

Who is the Taxonomy for?

As of January 1, 2022, all companies subject to the NFRD (or DPEF in France) are mainly concerned, i.e. approximately 11,700 large companies in Europe. This perimeter will be enlarged with the implementation of the CSRD between 2024 and 2026, which will include 38,000 additional companies in Europe (in particular companies with more than 250 employees or €40 million in turnover).

How does it work?

The Taxonomy is based on a three-step process to measure eligibility, contribution and alignment of activities.

1. Identify eligible activities that contribute to the six environmental objectives

To be eligible, the company must identify its activities from the list of around 80 activities. These activities, themselves listed in 13 macro-sectors, represent 90% of GHG emissions in the Union.

2. Study the alignment with the technical criteria

  • Identify a substantial contribution to at least one of the six environmental objectives (as of 22/03/2022 only the first two objectives of mitigation and adaptation to climate change are in force)
  • Do no significant harm to the other objectives
  • Comply with minimum social safeguards, based in particular on the International Bill of Human Rights, the OECD and UN guidelines, and the ILO Declaration on Fundamental Principles and Rights at Work)
  • Comply with the technical review criteria to assess points 1 & 2

3. Measure the contribution and associated KPIs

Actors must calculate and publish the share that aligned activities represent in its overall activity, illustrating its degree of alignment with the EU transition path.

  • For non-financial actors, this is the percentage of revenue, CapEx and OpEx derived from aligned activities
  • For financial actors, it is, in simplified terms, the "green asset ratio". For more details, please refer to the specific breakdowns by type of player.

What is the implementation schedule for concerned stakeholders ?

January 1, 2022

  • Product information under Articles 5 and 6 TR begins to apply to the first two environmental
  • Over the period from January 1 to December 31, 2022
    o Financial actors shall publish the share of assets exposed to non-eligible and eligible economic activities according to art 8 TR DA
    o Non-financial actors must publish their eligible and non-eligible activities in accordance
    with article 8 TR DA

January 1, 2023

  • Non-financial actors start disclosing all taxonomy alignment KPIs in accordance with article 8 TR DA

January 1, 2024

  • Financial actors begin disclosing all taxonomy alignment KPIs in accordance with Article 8 TR DA

Disclaimer: this page is a proposal for a synthesis and popularization of the texts, these texts are evolving and complex, this synthesis is by definition incomplete, and may be obsolete due to regulatory changes. It is necessary to always refer to the official texts available on Photo by Silas Baisch on Unplash.

march 2022
6 min read